Korben International Industrial & Financial Corporation, Inc.

Participation of the Corporation in the world business relations

WORLD FORUM
"POLITICAL SUPPORT TO THE US-RUSSIAN COOPERATION"
NEW YORK, WASHINGTON May 4 - 8 2001


Memorandum Address to the Presidents of Russia and the USA, a list of trends of the US-Russian cooperation, discussed at the Forum, a text of the analytical report, prepared by the Korben International Industrial & Financial Corporation at the request of the Russian Organizing Committee.

World Forum 4-8 May 2001 New York, Washington, USA

Memorandum

Esteemed
President of
the Russian Federation
Vladimir Putin
President of
the United States of America
George Bush

The World Forum "Political Support to the US-Russian Cooperation" expresses to you its big gratitude for practical steps, designed to stabilize, strengthen and develop international, inter-state and foreign economic relations which are exemplified by staging and successful holding of this Forum.
The Forum is memorable by the fact it is being held in the beginning of the third millennium and the XXI century and sets itself the task of finding new ways for US-Russian cooperation, enabling to attain practical results in the fields of economy, finance, industry, science, culture and education.
Your activities, esteemed Mr. President of the Russian Federation and esteemed Mr. President of the United States of America herald new phases of positive development of the relations between the two great nations and create prerequisites for favorable development of the world community.
The World Forum "Political Support to the US-Russian Cooperation" addresses a request to you to support its initiatives and wishes you success in your activities for the glory of the peoples of Russia and the USA, who committed you to act on their behalf and for the welfare thereof.

The Memorandum was approved at the final Plenary Session of the Forum.
May 8 2001, Washington, USA

Trends of the US-Russian cooperation,
discussed at the World Forum
"Political Support to the US-Russian Cooperation"
May 4-8 2001, New York - Washington, USA


1. Close alliance of the Russia and the NATO, resulting in a full-fledged membership of Russia in this military and political structure.
2. Joint work of Russia, the USA and other NATO-member countries designed to create a system of anti-missile defense.
3. Creation of a powerful unified military and intelligence force to fight terrorism, drug trafficking and proliferation of mass-destruction weapons.
4. Joint programs and scientific research in the fields of space, medicine, ecology etc.
5. Abolishment of trade and other discriminating sanctions against Russia. Writing off or restructuring of the former USSR debt, inherited by Russia.
6. Creation of a full-scale US University in Moscow subject to the agreement made with George Bush Senior in 1992.
7. Arranging Internet communications between the US and Russian schools and universities and development of joint remote training programs. Considerable widening of cultural and educational exchanges.
8. Support of democratic non-governmental organizations and mass media.
9. Improvement of the process of US visas issuance to Russian citizens.
10. The use of Russian know-how, personnel and equipment for forecasting and liquidation of  fires and their aftereffects as well as other calamities in the US territory.
 
ANALYTHICAL REPORT

Made by the President of Korben International, Peter L. Korotkevich, at the forum

Respected Ladies and Gentlemen!

Respected Mr. Chairman!


On behalf of Korben International Industrial & Financial Corporation allow me to greet the Seventh World Forum of the US-Russian cooperation, to express our big gratitude to the organizing committee and representatives of the Forum for the invitation to participate here and to wish all participants success in its holding.
Respected ladies and gentlemen, the Seventh World Forum of the US-Russian cooperation is being held in the beginning of the third millennium and in the new XXI century. The elections of Vladimir Putin as the Russian President and George Bush (Junior) as the US President herald new stages of the development of economic, financial, military and political relations between the two great nations disposing of a great potential, acquired over the last century which will result in formation of an absolutely new model of the development of global geopolitical system, that may predetermine new international and inter-state relations, change in the balance of forces, resources and creation of new conditions for the development of the world community. Respected ladies and gentlemen, this Forum pursuits the aim of finding new ways of US-Russian cooperation in the fields of business, science, culture and education as well as attraction of foreign investments into Russia. There is no escape from pointing out that the strategy, mechanisms and forms of the development of interstate and foreign-economic relations in the financial, economic, scientific, technical, educational and social spheres are first of all conditioned by the internal and external politics of a country, a stable regulatory and legislative base, governing relations between all the subjects of the business activity and by measures, taken by the state authorities to protect rights to ownership and investments, indiscriminately of their country of origin.
We think, that a loss of priority, strategically important for Russia lines of development resulting in a disruption of financial and credit system, intentional depreciation of assets, owned by the state, negative trends in financial, stock and exchange markets of the country, brought about a collapse of the foundation of its economic potential, a production base manufacturing and processing industry, which has been built over the last 50-60 years by means of material and human resources of the entire state. An overall result was a system crises, inflation, unemployment, production downfall, price increase, corruption and arbitrary rule of authorities, illegality and a wild outburst of crime.
A lack of clear economic and social priorities in the development of the economy and a dominating place of the monetary and finance sphere over the industry, the fundamental constituent of the public production, monetary and credit emission, not secured with commodity mass, and an excessive increase of the interest rate in effect over many years, have made it possible to use the funds available at the market mostly for short-term speculative transactions. At the same time industrial enterprises appeared to be entirely barred from credit resources. As a result decline in production exceeded 50% of the level of 1991 and the amount of non-payments between enterprises actually accounted for a half of the state budget.
The result was also a downfall of the Russian machine and technical export and that of products with a high added value, a reduction of the export of Russian goods at the most advantageous and perspective world goods markets. The major part of the export balance fell to the share of non-renewable natural resources. Artificially lowered rouble rate under the pretext of export stimulation and a necessity to replenish budget revenue brought about an unwinding of the inflation spiral. The result was cessation of investment financing of the industry and its further financial suffocation by way of excessive taxation. The financial and credit system instead of serving production began to have an active but ambiguous effect on production.
Mistakes made in financial and credit sphere and in the field of privatization, were supplemented with mistakes in the field of export-import and industrial policy. Uncontrolled export of oil and gas as well as prolonged lack of exchange and export control have made it possible that foreign currency assets of the Russian residents exceeded over some estimates some USD 50 bln. These exchange resources, obtained from export of natural wealth did go neither into the Russian industry, nor for repayment of the foreign debt. At best they were used for crediting of supplies of western equipment designed to upgrade fuel and energy complex in order to further widen export of raw materials.
The politics of liberalizing import of the food stuffs to the detriment of domestic manufactures has made supply of large industrial centers dependent on import.
All these problems have been building up over many years and were also a result of destructive manpower policy, held in Russia as well as purposeful disruption of the governmental bodies, underway in the country over 1991 - 1999 on a massive scale.
It is our opinion that the governmental bodies disposing of economic levers have to resolve at present the two main tasks:
- to overcome decline in production, reinstate normal investment process and to keep within strict limits finance and credit policy in order to hamper inflation;
- to find optimum approach to minimize aftereffects of the existent economic structure- bankruptcies of enterprises and unemployment, leaving in effect strict financial and credit policy.
These two main tasks are complicated and go along with a number of current economic and political tasks: to reduce tax burden for a fair manufacturer, increase revenues of the budget and to provide social support for a considerable part of the Russian population.
A number of other special features of the current economic and financial situation in the country are also noteworthy. Firstly, mining sectors of the economy, mainly fuel and energy sector, continue to play a priority role. The Russian Ministry of the Economy estimates the share of these sectors to remain at the level of 40,5%. This structure predetermines continuous building up of export of mineral resources while potential of science-saving engineering products, manufactured on the basis of the modern know-how, and consumer products and services has been steadily reduced. The main inflow of foreign investments within the framework of state credits also falls to the share of the mining sector, while the efficient strategy of their attraction, developed by the state, shall take into account the interests of all manufacturers.
The financial sphere continues to be characterized by a decline in Rouble rate in respect to the main world currencies, which does not reflect the actual price of the national riches incorporating fixed assets, land, prospected natural resources, valued at USD 127 trillions and educational potential constituting the basis of the strategic potential of Russia. Besides financial transactions in Russia do not bear investment but rather a short-term and speculative character.
The reason for a lack of effect of the national riches of the country on the Rouble rate lies in the fact that the major part of financial and economic levers of power are still centered in the hands of the state structures, which do not ensure their efficient use. This can be seen from analysis of condition of the domestic financial market where the key role is allocated to the centralized credit resources coming from the state budget whose revenues are built from taxes levied on profits from export of mineral resources and on consumer goods import. One cannot forget here a steadily growing external and internal debt.
The total volume of investments after financial crisis of the 1998 has gone down twofold to account for 40% in respect to the pre-crisis level, while the basic production assets have become weared at 60%. Some experts estimate that some 840 thousand sets and units of equipment have been withdrawn from circulation. Lack of incentives for collecting investment funds makes the enterprises to use depreciation fund assets to replenish circulating assets, while the major part of the foreign investments both private and state allocated continues to be centered in a narrow community of mining sectors, firstly oil and gas industry. We think that investment policy should be directed first of all to the renewal of the existing fixed assets, improvement of their composition, upgrading, re-profiling and re-equipment of the insolvent and bankrupted enterprises. In this case attracted funds shall be invested into the industrial potential of the insolvent Russian enterprises undergoing re-profiling. This process will enable to stop further growth of the state debt existing by reason of financing insolvent enterprises, wheeler-dealer financing, redistribution of state property between monopolistic structures, and to privatize these enterprises with participation of foreign investors, to create civilized stock market, to issue fully collateralized Russian securities to be sold at the world stock markets. The investment policy should also stipulate creation in the country of a favorable investment climate including allocation of preferential terms in taxation. In our mind investments shall be mainly shifted into production and reprocessing sectors.
The afore mentioned approach stipulates resolution of a few basic problems faced by the Russian economy, in particular amelioration of the financial condition of enterprises, resolving the problem of default in payments, holding of efficient structural reform of the industry, avoiding of negative social effects of bankruptcies and gradual formation of the class of proprietors, interested in development of profitable production. All this will promote integration of Russia into a community of countries with highly developed market economy.
Considering complicated financial and economic situation in Russia, which demands a search of adequate financial mechanisms of access to the world sources of financing without increase in the overall debt of the country, in order to attract investments into the economy we have developed a "Program of increase of the capital", which has undergone an expert examination in 1995 and was approved by the Administrative Department of the President of the Russian Federation, the Fund of Presidential programs, the Ministry of Finances of the Russian Federation, the State Committee for the Control of the State Property (Mingosimushestvo), as well as by the interested Ministries and Departments, by the Supervisory Board of the Fund of Presidential Programs of the Russian Federation, the Governmental Organizations, the Ministries and Departments of the Russian Federation. The Program is based on holding of transactions with securities, at the world financial and stock markets, secured with tangible assets owned by Russia. This collateral at the same time is not supposed to be sold but increased through a steady increase of the tangible assets, belonging to the treasury. Transactions with securities shall be additionally guaranteed by the financial guarantees of the world recognized first-rate financial institutions which will enable to ensure influx of capital into the organizations taking part in the program, execution of the joint programs and projects, designed to attract investments into the priority spheres of Russian economy under the state guarantees and debt liabilities. All together this will enable to open for Russia the way to the international capital markets and to mobilize additional credit facilities.
This program, giving the Russian party a fixed guaranteed profit, has a constant character and stipulates opportunity of increasing the scope of operations by way of capitalizing on the received profit. Moreover it is guaranteed that no claims can be made in respect of this collateral on the part of third persons including those, which relate to the external debt. The risk for the Russian party is hereby completely excluded.
Profits received from commercialization of financial instruments will enable to carry out restructuring of the Russian external debt owed to the London and Paris clubs, to strengthen Russian financial and economic system, to avoid financial crisis in the country and to allocate part of the funds into infrastructure development programs, social and humanitarian projects in Russia.
Introduction of the financial mechanisms, ensuring inflow of capital, required to mobilize construction industry, production sectors, non-manufacturing businesses and trade will enable to create new working places in every country. Inflow of funds to the population will grow up respectively resulting in an improvement of life level and creation of a stock of highly liquid assets, capable to serve as additional collateral for any transactions, including stock transactions at the domestic and foreign market. The afore mentioned mechanisms will also enable to increase inflow of inexpensive capitals required for the development of the state, to speed up domestic turnovers, make bigger investments into industry to achieve financial stability and gradual stabilization of the entire finance and banking system.
Respected ladies and gentlemen, considering the character of the Forum let me focus your attention to a very important to my mind issue which may be dominating in a wide spectrum of the problems in question the issue of structural transformations, carried out at present by President V. Putin.
My personal, long-term practical experience of work with the top management of the country and the state machinery gives me all the grounds to publicly come out with my assumptions and to support promising plans carried out by the President as well as the course of the state development for the next years.
It has been already long since Russia was last governed by intelligent, educated and sensible people, capable to put the interests of the state and people above their personal ones.
The official statement of the Russian President V. Putin about clearing off former USSR debt liabilities, payable to the London and Paris clubs as well as joint efforts of the Russian, US and European law enforcement bodies (Ministry of the Interior, General Prosecutors Office, Interpol and the FBI), to oppose, suppress and to eliminate international organized crime groups, specializing in money laundering, illegal drug trafficking and terrorism testify about unwavering purpose of Russia to build interstate relations on a mutually advantageous, equal and partnership like basis.
Russia disposes of big potential opportunities however to resolve the above specified problems it is first of all required to ensure implementation of the legislative acts and Interstate Agreements, ensuring protection of property, owned by foreign investors who are the subjects of international and foreign economic relations, to enforce laws, to equal in rights non-residents with residents and/or to lift restrictions on transactions in the financial and stock markets, in effect in the territory of the Russian Federation in respect to foreign financial, banking and insurance companies. The government of the Russian Federation shall provide state guarantees to the foreign states and their residents, operating in the territory of the Russian Federation and creating material sphere of production by attracting foreign material and financial resources, advanced equipment and know how to resolve the tasks of projects financing on a self-repayment basis.
We think that implementation of the offered measures will enable to achieve growth of production, productive forces and means of production, to reduce budget deficit, increase GDP, replenish Federal Budget and to create additional working places. This will also enable to improve economic efficiency, to bring into turnover and to use buried reserve of economic, financial, resource, industrial and technical capacities and to invest or reinvest capitals at the approval of foreign investors for financing of the Federal programs of the Russian Federation as well as to attract in a near term future through investment financing additionally some USD 250 bln. for the Russian economy.

It is our opinion that only by uniting efforts we will manage to achieve positive results.

In conclusion let me once again wish the Seventh World Forum of the US-Russian cooperation a successive work and achievement of the set goals. And may the Lord help us all!

Considering the above we have prepared and annex hereto the Memorandum An Address of the Seventh World Forum of the US-Russian Cooperation to the President of the United States of America, George Bush and the President of Russia, Vladimir Putin.

Respectfully,

President of
"Korben International Industrial & Financial Corporation, Inc."

Academician, Peter L. Korotkevich
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